… right? Why else do you set them? It should be used as a way to track spending vs income, so that we can be doing more than just covering our expenses month to month. Really, there’s not a lot to it. Here are 10 steps to creating an effective budget!

1. Use Excel – And your personal finance budget tracking just got easier! There’s not a more simple way to manage things than by using excel. And the good news? You don’t have to know much about the program to make it effective. Create several columns and list your income and expenses. With a little effort (and maybe some help from excelforum.com), you’ll be able to automatically total your budget figures, making things much easier on you!

2. Determine Monthly Net Income – It’s simple… how much money do you make on a monthly basis? Remember, though, Uncle Sam is going to take his, so you need to make sure you track your NET income instead of your GROSS income. What’s the difference? Well- net income is your actual dollar figure that goes into you bank when you cash your check; or, in other words, it’s what you don’t pay in taxes. Your gross dollar figure would be what you would get paid if the government didn’t take our theirs. Make sure you figure your budget off of your net income. Hey- if you never touch the money, then it was never yours, right?

3. Determine your Fixed Costs – What’s a fixed cost? Well- consider your car payment, mortgage, health insurance, car insurance, and anything else that doesn’t change month to month. Also, make sure you include in that set of expenses 10 to 15 percent of your income you’ll be paying yourself with. After all, if you don’t plan on saving and treat it like a must, you’ll never do it. Make your long term savings goals a REAL expense to you now.

4. Determine your Variable Costs – These would be expenses that you can plan on from month to month but that can change depending on your behavior. Your groceries, eating out, entertainment, and clothing expenses could be on this particular list. And because we have the capability of lowering these expenses based on our behavior, we can use this as one of the biggest tools to cut into our debts and/or build wealth. You NEED to know your variable costs in order to make changes in your spending habits.

5. Set Goals – After determining all of your costs, you need to set goals. Pick numbers under each of your categories that reflect something to shoot for. This applies mostly to your variable costs, as you have the power each month to cut down where you need to.

6. Keep Your Receipts – … or else you’ll forget to record some of your spendings. Believe me- it happens! I tend to keep the receipts I accumulate throughout the day in my wallet; then, when I get home later that night, I’ll quickly insert my outflows into my excel spreadsheet.

7. Nightly Recording – Just do it. Yeah… it’s understandable that there are going to be times when this is the last thing you want to worry about after getting home from a long day at work. If you can keep up on it, you’ll be glad. AND- it eliminates a lot of the possibility of error, meaning you’ll have a more accurate set of numbers at the end of the month to evaluate.

8. Label Your Expenses – You should have several categories for your expenses. For example, you might have a health care category or a automobile category. Within each one, make sure you are recording specific expenses. For example (with a car), gasoline, insurance, and maintenance. That way when you see a large figure that month for your car, you’ll be able to identify where changes need to be made.

9. Evaluate – After following your budget for a month or so, you’ll want to see where you can improve. Find areas where you spend more than may be necessary. You may even find that you’re allowing yourself too much in a particular area; again, if your budget doesn’t stretch you a little bit, neither will your dollar!

10. Enjoy it! Make a Leisure Fund – ABSOLUTELY ESSENTIAL! No question about it… you need a leisure fund. In other words, pay yourself some money to have fun with each month. Personal budgets get such a bad rap because most think there’s no room for fun. Not so! Your budget should EMPOWER YOU! You’ll never feel so good about blowing $25 on something random in your life. Give yourself a modest allowance to spend on yourself! It’s fun!

I like the part about the leisure fund. It’s funny, I just read that and had never read anything about a leisure fund before, but I instinctually allocated a fixed amount per month for this purpose before I read this article. Hmmm…maybe I’m on the right track. I call this for my own personal budget, “Entertainment/Leisure Fund.”

Great advice!
I’m taking a class on personal finance and I was forced to do some of these things, like keeping track of my expenses and I can confirm that it is very helpful. It has made me realize how much money I am wasting in certain parts of my life that I shouldn’t be, and it’s helped me find places where I can cut some of my spending. Even though it can be annoying to have to write everything down it’s 1005 worth it.